Question 1

What types of exceptions are auditors most concerned with when evaluating populations of accounting data?

Accepted Answer

The answer of What types of exceptions are auditors most...

Question 2

Which of the following is the exception rate that the auditor expects to find before testing?
A)sample exception rate
B)estimated population exception rate
C)computed exception rate
D)tolerable exception rate

Accepted Answer

The estimated population exception rate is the rate of exceptions that the auditor expects to find in the population before starting any testing. This rate is based on the auditor's prior experience and other relevant information.

Question 3

Which of the following must be set prior to testing a sample?
A)sample exception rate
B)achieved upper precision limit
C)computed exception rate
D)tolerable exception rate

Accepted Answer

The tolerable exception rate must be set prior to testing a sample because it serves as the benchmark for determining whether the sample result is acceptable or not. The sample exception rate and computed exception rate are determined after testing the sample, while the achieved upper precision limit is used to evaluate the precision of the sample result but does not need to be set prior to testing.

Question 4

The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the
A)acceptable exception rate.
B)estimated population exception rate.
C)sample exception rate.
D)tolerable exception rate.

Accepted Answer

The tolerable exception rate is the maximum rate of deviation from a control that an auditor is willing to accept and still rely on the control. It is often determined based on the auditor's assessment of the risk of material misstatement and the potential impact of such misstatement on the financial statements. Therefore, this is the best choice. The other options - acceptable exception rate, estimated population exception rate, and sample exception rate - do not accurately describe the concept of tolerable exception rate.

Question 5

Deviation refers to a departure from prescribed controls or amounts that are not monetarily correct.

Accepted Answer

The answer of Deviation refers to a departure from prescribed...

Question 6

When analyzing exceptions,the auditor should keep in mind that
A)all exceptions must be reported to management.
B)they should determine the breakdown in the internal controls that allowed the exceptions to occur.
C)the nature of an exception and its causes have no effect on the qualitative evaluation of the system.
D)exceptions do not need to be analyzed if it is too costly.

Accepted Answer

When analyzing exceptions, the auditor should determine the breakdown in the internal controls that allowed the exceptions to occur. This helps identify areas for improvement in the system and allows management to take corrective action. Reporting all exceptions to management is important, but it is not the only consideration in analyzing exceptions. The nature and causes of exceptions are also important factors to consider in evaluating the system. While cost may be a factor in determining the extent of analysis, it should not be the sole reason for not analyzing exceptions.

Question 7

The risk which the auditor is willing to take in accepting a control as being effective when the True population exception rate is greater than a tolerable rate is the
A)finite correction factor.
B)tolerable exception rate.
C)acceptable risk of overreliance.
D)estimated population exception rate.

Accepted Answer

Acceptable risk of overreliance refers to the level of risk that the auditor is willing to take in accepting a control as effective when the true population exception rate is greater than the tolerable rate. It represents the maximum risk that the auditor is willing to take in order to maintain the efficiency of the audit. The other options (A, B, and D) do not accurately describe this concept.

Question 8

If the auditor concludes that the computer upper exception rate (CUER)is 5% at an 8% sampling risk,this means that the exception rate in the population is no greater than 5% with an 8% risk of the exception rate exceeding 5%.

Accepted Answer

This statement is accurate. The CUER is an estimate of the exception rate in the population. An 8% sampling risk means that there is an 8% chance of the sample failing to detect an exception rate greater than the CUER in the population. Therefore, if the auditor concludes that the CUER is 5% at an 8% sampling risk, it means that the auditor is 92% confident that the exception rate in the population is no greater than 5%.

Question 9

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the
A)tolerable exception rate.
B)estimated population exception rate.
C)acceptable risk of overreliance.
D)sample exception rate.

Accepted Answer

The tolerable exception rate is the maximum exception rate that the auditor would allow in the population and still be willing to conclude that the control is operating effectively. Therefore, Option A is the correct answer.

Question 10

Which of the following would have the least impact in determining sample size?
A)acceptable risk of overreliance
B)risk of assessing control risk too low
C)tolerable exception rate
D)population size

Accepted Answer

Population size would have the least impact in determining sample size as it is only one factor to consider among other critical factors such as acceptable risk of overreliance, risk of assessing control risk too low, and tolerable exception rate. Albeit important, the population size can be adjusted with other factors to achieve the desired sample size.

Question 11

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions,the auditor
A)can conclude that the sample exception rate is 2%.
B)can conclude that the population exception rate is 2%.
C)can calculate the highest exception rate expected in the population.
D)cannot make any conclusions about either the sample or the population.

Accepted Answer

The sample exception rate is simply the number of exceptions found in the sample divided by the sample size. In this case, the sample exception rate is 2/100 or 2%. The auditor cannot make any conclusions about the population exception rate without conducting further procedures.

Question 12

If the auditor decides to assess control risk at the moderate level in a private company audit,when in previous years the auditor set control risk at the maximum level,then tests of controls for the current year would be
A)increased in number.
B)reduced in number.
C)not performed.
D)unchanged from prior planned settings.

Accepted Answer

If the control risk assessment is reduced from the maximum level to the moderate level, then the auditor would need to perform more tests of controls to gain sufficient appropriate audit evidence to support the lower level of control risk. Therefore, the tests of controls would need to be increased in number.

Question 13

The relationship of tolerable exception rate (TER)to sample size is
A)direct (larger TER = larger sample).
B)inverse (larger TER = smaller sample).
C)variable (sometimes larger,sometimes smaller).
D)not determinable.

Accepted Answer

The relationship between TER and sample size is inverse, meaning that as the TER increases (allowing for more exceptions), the sample size decreases (requiring less data). This is because a higher TER means that a smaller sample size can still provide reliable results.

Question 14

The upper limit of the interval estimate is also known as the confidence interval.

Accepted Answer

The upper limit of the interval estimate is a part of the confidence interval, which also includes a lower limit; together, they define the range of values within which a population parameter is estimated to lie with a certain level of confidence.

Question 15

When planning the audit sample,
A)one objective of the tests of controls is to test the effectiveness of the controls.
B)audit sampling applies to analytical procedures.
C)audit sampling generally applies to automated controls.
D)the auditor must generalize from the sample to the population.

Accepted Answer

The answer of When planning the audit sample,
A)one objective of...

Question 16

When the computed upper exception rate (CUER)is greater than the tolerable exception rate (TER),it is necessary for the auditor to take specific action.Which of the following courses of action would be most difficult to justify?
A)Reduce the tolerable exception rate so as to accept the sample results.
B)Expand the sample size and perform more tests.
C)Revise the assessed control risk upward.
D)Write a letter to management which outlines the control deficiencies.

Accepted Answer

It would be difficult to justify reducing the tolerable exception rate to accept the sample results because this would essentially lower the standard of acceptable risk for the audit. The TER is determined based on the auditor's assessment of the risks associated with the audit and cannot be changed without justification. It is more appropriate to either increase the sample size and perform more tests, or revise the assessed control risk upward if the results indicate a higher risk of material misstatement. Writing a letter to management outlining control deficiencies is also a necessary action for the auditor to take if there are significant control deficiencies identified during the audit.

Question 17

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated?
A)sample exception rate
B)estimated population exception rate
C)computed upper exception rate
D)exception

Accepted Answer

The answer of Which of the following is not a...

Question 18

Place the following steps in their proper order: 1. Analyze exceptions.
2) Select the sample.
3) Define attributes and exception conditions.
4) State the objectives of the audit test.
5) Specify the tolerable exception rate.
A)1,3,2,4,5.
B)4,3,1,2,5.
C)4,3,5,2,1.
D)1,2,3,4,5.

Accepted Answer

The correct sequence for conducting an audit test starts with stating the objectives (4), then defining attributes and exception conditions (3), specifying the tolerable exception rate (5), selecting the sample (2), and finally analyzing exceptions (1). This logical progression ensures a structured approach to auditing, from planning through execution and analysis.

Question 19

Auditors often use the ________ to determine the estimated population exception rate.
A)current year's audit results
B)tolerable exception rate
C)preceding year's audit results
D)estimated computed by management

Accepted Answer

The answer of Auditors often use the ________ to determine...

Question 20

Which of the following represents the best description of the tolerable exception rate?
A)the highest exception rate the auditor will permit in the control being tested and still conclude it is operating effectively
B)the highest exception rate the auditor expects to find in the population
C)the number of exceptions found in the sample divided by the sample size
D)the highest estimated exception rate in a population at a given estimated population exception rate.

Accepted Answer

The tolerable exception rate represents the highest exception rate that the auditor is willing to accept in the control being tested and still conclude that it is operating effectively. This is often determined by considering the impact that the control has on the financial statements and the risk of material misstatement. Therefore, option A is the correct description of the tolerable exception rate.

Quiz 15: Audit Sampling for Tests of Controls and Substantive Tests of Transactions

What types of exceptions are auditors most concerned with when evaluating populations of accounting data?

Which of the following is the exception rate that the auditor expects to find before testing?

Which of the following must be set prior to testing a sample?

The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the

Deviation refers to a departure from prescribed controls or amounts that are not monetarily correct.

When analyzing exceptions,the auditor should keep in mind that

The risk which the auditor is willing to take in accepting a control as being effective when the True population exception rate is greater than a tolerable rate is the

If the auditor concludes that the computer upper exception rate (CUER)is 5% at an 8% sampling risk,this means that the exception rate in the population is no greater than 5% with an 8% risk of the exception rate exceeding 5%.

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the

Which of the following would have the least impact in determining sample size?

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions,the auditor

If the auditor decides to assess control risk at the moderate level in a private company audit,when in previous years the auditor set control risk at the maximum level,then tests of controls for the current year would be

The relationship of tolerable exception rate (TER) to sample size is

The upper limit of the interval estimate is also known as the confidence interval.

When planning the audit sample,

When the computed upper exception rate (CUER) is greater than the tolerable exception rate (TER) ,it is necessary for the auditor to take specific action.Which of the following courses of action would be most difficult to justify?

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated?

Place the following steps in their proper order: 1. Analyze exceptions. 2) Select the sample. 3) Define attributes and exception conditions. 4) State the objectives of the audit test. 5) Specify the tolerable exception rate.

Auditors often use the ________ to determine the estimated population exception rate.

Which of the following represents the best description of the tolerable exception rate?